APRA cans Westpac's add-on liquidity requirement

  • By Zilla Efrat

The Australian Prudential Regulation Authority (APRA) has removed a liquidity add-on imposed on Westpac for breaching its prudential standards on liquidity after finding the bank has improved its liquidity risk management.

APRA took action against Westpac in 2020 in response to material breaches that showed weaknesses in the bank’s risk management and oversight, risk control framework and risk culture in its liquidity risk management and reporting.

According to Westpac, the breaches of liquidity requirements predominantly relate to Westpac New Zealand.

As a result, a 10 per cent add-on was applied to the net cash outflow component of Westpac’s liquidity coverage (LCR) ratio calculation.

Westpac has since completed a program to remediate findings from an independent review of its liquidity risk management to APRA’s satisfaction.

The capital requirement add-on of $1 billion to reflect Westpac’s heightened operational risk profile remains in place.

In a statement to the ASX yesterday, Westpac said the removal of the add-on will contribute around 13 percentage points to Westpac’s LCR. Westpac’s average LCR for the June 2022 quarter was 130 per cent.

“Given the active management of our liquidity position, and that our LCR is already comfortably above the 100 per cent regulatory minimum, it is unlikely our reported average LCR will materially rise from current levels in future reporting periods,” Westpac said.